US: Consumer Sentiment

Fri Apr 01 09:00:00 CDT 2016

Consensus Consensus Range Actual Previous
Sentiment Index - Level 90.9 90.5 to 92.3 91.0 90.0

There's plenty of complaints about low wages and plenty of confusion surrounding the presidential campaign but they're not dragging down consumer spirits. The consumer sentiment index came in at a final 91.0 in March, this is up 1 point from mid-month and implies a roughly 92.0 pace over the last two weeks of the month. The final readings for February and January were 91.7 and 92.0.

Both components, expectations and current conditions, show little change in March, at 81.5 for the former and 105.6 for the latter. A minor plus in the report is traction in 5-year inflation expectations, up 2 tenths from February to 2.7 percent. But 1-year expectations, also at 2.7 percent, are unchanged.

Personal spending posted on Monday was a big disappointment, pointing to slow growth for the consumer sector during the first quarter. But this report, together with Tuesday's consumer confidence report, do hint at a bounce back.

Market Consensus Before Announcement
The Econoday consensus is not pointing to a month-end rebound for the consumer sentiment index which in the preliminary report for March fell back nearly 2 points to 90.0 for the least optimistic reading since October. Inflation expectations in the mid-month report rebounded, getting a boost from this month's rise in pump prices. Readings on consumer spirits have remained solid but have been coming down this year.

The University of Michigan's Consumer Survey Center questions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. Among economic reports, consumer sentiment refers to the Michigan survey while consumer confidence refers to The Conference Board's survey. Preliminary estimates for a month are released at mid-month. Final estimates for a month are released near the end of the month.

The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Consumer confidence did shift down in tandem with the equity market between 2000 and 2002 and then recovered in 2003 and 2004. More recently, the credit crunch and surge in gasoline prices led confidence downward in 2007. Despite a drop in gasoline prices, 2008 saw sentiment near record lows due to recession, a precipitous fall in stock prices, and fragile credit markets. However, consumer sentiment helped to confirm the easing of recession during 2009 as this index slowly rose from earlier lows. One should be aware that this report is released to private subscribers several minutes prior to release to the media. This may account for occasional market activity just prior to public release.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.